Merge is imminent – which is important now

With the merger and the conversion of the consensus mechanism from Proof of Work (PoW) to Proof of Stake (PoS), Ethereum wants to complete a mammoth project in mid-September. For several years, the goal has been to reduce power consumption by 99 percent. To date, however, the changeover has often had to be postponed.

A report published by Kraken Intelligence explains the different consensus mechanisms. Ethereum and Ethereum 2.0 are also discussed. Those are the facts.

The reason for consensus mechanisms: Sybil attacks

Consensus mechanisms, such as those used by Bitcoin or Ethereum 2.0, are defense mechanisms against so-called Sybil attacks, which attackers could otherwise use to gain power over a blockchain. Thus, these “mechanisms set rules that nodes must follow in order to append data to a blockchain,” the report states. The two mechanisms Proof of Work and Proof of Stake are used most frequently.

“A Sybil attack is an exploit against an online network in which a small number of entities attempt to take control of the entire network using multiple accounts, nodes or computers,” the report defines.

This can be compared to a bot attack on social media. For example, creating many comments can effectively “take over” the conversation. At the blockchain level, the attackers would operate multiple nodes to gain majority in the network.

Ethereum’s new consensus mechanism

In order to increase the “difficulty”, as one would say in crypto jargon, it becomes even more complicated. The Sybil resistance mechanisms are divided into further consensus procedures. This is how Bitcoin actually works under Proof of Work Nakamoto, while Ethereum still runs under Proof of Work Nakamoto-style GHOST.

From September, the new Ethereum will then operate under the Beacon Proof of Stake Chain. According to Ethereum, the consensus process is called Gasper and is a combination of “Casper the Friendly Finality Gadget (Casper-FFG)” and the “LMD-GHOST Fork Choice Algorithm”.

Together, these components form the consensus mechanism that secures Proof-of-Stake Ethereum.

Ethereum Website

However, the attack requirements remain at 50 percent each. For example, if the attacker were to raise more than half of the Bitcoin hash rate, he could influence the network according to his ideas. More about this here.

The eternal debate

The eternal debate about what is the better Sybil resistance mechanism can hardly be answered from a purely factual point of view. Both solutions have arguments for or against.

Bitcoin’s Proof of Work features a large, seemingly impenetrable network of miners and node validators. In addition, the decentralization is given by the distribution of the mining locations all over the world. A downside is scalability. With only seven transactions per second, the network looks dated and clumsy. The enormous power consumption is also a disadvantage that many critics condemn in the strongest possible terms. Nevertheless, this one in particular is considered a “feature” in the scene – and not a “bug”.

Ethereum’s Proof of Stake, on the other hand, can function almost completely sustainably. The conversion should save 99 percent of energy costs. At the same time, the transaction rate will be increased, which should make the network even more applicable. A disadvantage that stands out here is the increasing centrality. The more big investors get into cryptocurrency, the less decentralized it becomes.

Conclusion: The blockchain trilemma

No definitive solution can be found. Vitalik Buterin, founder of Ethereum, established this in 2014 and referred to the blockchain trilemma. The properties of decentralization, scalability and security are intertwined in a triangle. Achieving all three would be optimal for a blockchain. However, only a maximum of two properties can be achieved – at least in theory.

By increasing scalability, Ethereum loses decentralization. Bitcoin is so slow because security and decentralization play an important role. While the bitcoin fork Bitcoin Cash (BTH) can handle more transactions per block, it is far more centralized than its big brother. You can find out more about hard forks here.

It remains to be seen whether Ethereum will also become more centralized as a result of the merge. In order to optimally prepare you for Ethereum 2.0, the Merge and Proof of Stake, we recommend our BTC-ECHO Magazine from August. This way to the shop!

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